Merchants Bank clinches control of Wing Lung

By Luo Jun  |   2008-6-14  |     NEWSPAPER EDITION

CHINA Merchants Bank Co, the nation's most profitable lender, agreed to pay HK$19.3 billion (US$2.5 billion) in cash for control of Hong Kong's Wing Lung Bank Ltd in the city's biggest banking acquisition in seven years.

Merchants Bank will buy 123.3 million shares, a 53.1 percent stake, at HK$156.5 each, from Wing Lung Chairman Michael Wu and his family, the two companies said in a statement to the Hong Kong Stock Exchange yesterday. Wing Lung last traded at HK$147.40 in Hong Kong and was suspended on May 30.

Merchants Bank will also make a general offer for the rest of Wing Lung shares at the same price, valuing Wing Lung at US$4.66 billion. Under Hong Kong law, the buyer of the Wu family's stake must make a tender offer to remaining shareholders.

The Shenzhen-based bank beat out Industrial & Commercial Bank of China Ltd and Australia & New Zealand Banking Group Ltd in a three-month battle to win 35 branches in Hong Kong, which has the world's highest ratio of millionaires.

Merchants Bank, 12 percent owned by a state investment arm, is paying 2.91 times the end of 2007 book value for the 53 percent stake in Wing Lung in its first acquisition outside mainland China, according to Bloomberg News calculations based on information provided in the statement.

China's Ministry of Finance told state-owned ICBC not to pay more than 2.85 times book for Wing Lung, two people with knowledge of the matter said this week. Merchants Bank was also advised by regulators to follow that guidance, they said.

Wing Lung, a family-run bank founded in 1933 with initial capital of US$5,700, has 35 branches in Hong Kong and US$12 billion of assets.

On April 30, the bank reported a first-quarter loss after writing off US$61 million of investments in structured investment vehicles and collateralized debt obligations.